FIN 325 CH 12 HW

The average compound return earned per year over a multiyear period is called the _____ average return. A. Arithmetic B. Standard C. Variant D. Geometric E. Real

D. Geometric

One year ago, you purchased a stock at a price of $38.22 per share. Today, you sold the stock and realized a total loss of 11.09 percent on your investment. Your capital loss was −$4.68 per share. What was your dividend yield? A. 1.15% B. 0.88% C. 1.02% D. 0.67% E. 0.38%

A. 1.15% Explanation: Dividend yield = -0.1109 - (-$4.68/$38.22) Dividend yield = 0.0115, or 1.15%

Based on the period 1926-2019, the actual real return on large-company stocks has been around: A. 9 percent B. 10 percent C. 6 percent D. 7 percent E. 8 percent

A. 9 percent

The return earned in an average year over a multiyear period is called the _____ average return. A. Arithmetic B. Standard C. Variant D. Geometric E. Real

A. Arithmetic

The U.S. Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits. Given this, you would be most apt to argue that the markets are less than _____ form efficient. A. weak B. semiweak C. semistrong D. strong E. perfect

D. strong

A stock has annual returns of 5 percent, 21 percent, −12 percent, 7 percent, and 6 percent for the past five years. The arithmetic average of these returns is _____ percent while the geometric average return for the period is _____ percent. A. 5.80; 4.86 B. 5.80; 5.03 C. 5.62; 5.03 D. 5.40; 5.03 E. 5.40; 4.86

E. 5.40; 4.86 Explanation: Arithmetic average = (0.05 + 0.21 − 0.12 + 0.07 + 0.06)/5 Arithmetic average = 0.054, or 5.4% Geometric return = {[1.05(1.21)(0.88)(1.07)(1.06)]^0.20 }− 1 Geometric return = 0.0486, or 4.86%

A stock experienced returns of 5 percent, −17 percent, and 15 percent during the last three years. What is the standard deviation of the stock's returns for the three-year period? A. 16.37% B. 13.37% C. 48.86% D. 5.98% E. 2.68%

A. 16.37% Explanation: Average return = (0.05 − 0.17 + 0.15)/3 Average return = 0.0100, or 1% σ = {[1/(3 − 1)][(0.05 − 0.01)^2 + (−0.17 − 0.01)^2 + (0.15 − 0.01)^2]}^0.5 σ = 0.1637, or 16.37%

A stock had the following year-end prices and dividends: Year Price Dividend 0 $59.59 - 1 70.38 $1.21 2 62.34 1.47 3 71.74 1.56 What was the arithmetic average return for the stock? A. 9.46% B. 15.59% C. 8.60% D. 11.83% E. 15.68%

A. 9.46% Explanation: Year 1 return = ($70.38 − 59.59 + 1.21)/$59.59 Year 1 return = 0.2014, or 20.14% Year 2 return = ($62.34 − 70.38 + 1.47)/$70.38 Year 2 return = −0.0934, or −9.34% Year 3 return = ($71.74 − 62.34 + 1.56)/$62.34 Year 3 return = 0.1758, or 17.58% Arithmetic average return = (0.2014 − 0.0934 + 0.1758)/3 Arithmetic average return = 0.0946, or 9.46%

One year ago, you purchased a stock at a price of $43.20 per share. The stock pays quarterly dividends of $.18 per share. Today, the stock is selling for $45.36 per share. What is your capital gain on this investment? A. $1.44 B. $2.16 C. $2.80 D. $1.74 E. $2.34

B. $2.16 Explanation: Capital gain = $45.36 - 43.20 Capital gain = $2.16

You own 850 shares of Bennett Trading stock valued at $53.15 per share. What is the dividend yield if your total annual dividend income is $1,256? A. 2.67% B. 2.78% C. 1.83% D. 2.13% E. 2.54%

B. 2.78% Explanation: Dividend yield = ($1,256/850)/$53.15 Dividend yield = 0.0278, or 2.78%

Which one of the following statements related to capital gains is correct? A. The capital gains yield includes only realized capital gains B. An increase in an unrealized capital gain will increase the capital gains yield C. The capital gains yield must be either positive or zero D. The capital gains yield is expressed as a percentage of a security's total return E. The capital gains yield represents the total return earned by an investor

B. An increase in an unrealized capital gain will increase the capital gains yield

Standard deviation is a measure of which one of the following? A. Average rate of return B. Volatility C. Probability D. Risk premium E. Real returns

B. Volatility

Which one of the following is a correct ranking of securities based on the volatility of their annual returns over the period of 1926-2019? Rank from highest to lowest. A. Large-company stocks, U.S. Treasury bills, long-term government bonds B. Small-company stocks, long-term corporate bonds, large-company stocks C. Long-term government bonds, long-term corporate bonds, intermediate-term government bonds D. Large-company stocks, small-company stocks, long-term government bonds E. Intermediate-term government bonds, long-term corporate bonds, U.S. Treasury bills

C. Long-term government bonds, long-term corporate bonds, intermediate-term government bonds

The historical record for the period 1926-2019 supports which one of the following statements? A. When large-company stocks have a negative return, they will have a negative return for at least two consecutive years B. The return on U.S. Treasury bills exceeds the inflation rate by at least 0.5 percent each year C. There was only one year during the period when double-digit inflation occurred D. Small-company stocks have lost as much as 50 percent and gained as much as 100 percent in a single year E. The inflation rate was positive each year throughout the period

D. Small-company stocks have lost as much as 50 percent and gained as much as 100 percent in a single year.

Vanessa purchased a stock one year ago and sold it today for $3.15 per share more than her purchase price. She received a total of $2.60 per share in dividends. Which one of the following statements is correct in relation to this investment? A. The dividend yield is expressed as a percentage of the par value B. The capital gain would have been less had Vanessa not received the dividends C. The total dollar return per share is $0.55 D. The capital gains yield is positive E. The dividend yield is greater than the capital gains yield

D. The capital gains yield is positive

Inside information has the least value when financial markets are: A. weak form efficient B. semiweak form efficient C. semistrong form efficient D. strong form efficient E. inefficient

D. strong form efficient

Last year, you purchased 500 shares of Ayala, Incorporated, stock for $25.20 per share. You have received a total of $400 in dividends and $17,000 in proceeds from selling the shares. What is your capital gains yield on this stock? A. 25.9% B. 12.7% C. 3.2% D. 47.6% E. 34.9%

E. 34.9% Explanation: Capital gains yield = [($17,000/500) - $25.20]/$25.20 Capital gains yield = 0.349, or 34.9%

Which one of the following statements correctly applies to the period 1926-2019? A. Large-company stocks earned a higher average risk premium than did small-company stocks B. The average inflation rate exceeded the average return on U.S. Treasury bills C. Large-company stocks had an average annual return of 15.2 percent D. Inflation averaged 2.4 percent for the period E. Long-term corporate bonds outperformed long-term government bonds

E. Long-term corporate bonds outperformed long-term government bonds

Which one of the following statements related to market efficiency tends to be supported by current evidence? A. It is easy for investors to earn abnormal returns B. Short-run price movements are easy to predict C. Markets are most likely only weak form efficient D. Mispriced stocks are easy to identify E. Markets tend to respond quickly to new information

E. Markets tend to respond quickly to new information

Which one of the following is the most likely reason why a stock price might not react at all on the day that new information related to the stock's issuer is released? Assume the market is semistrong form efficient. A. Company insiders were aware of the information prior to the announcement B. Investors do not pay attention to daily news C. Investors tend to overreact D. The news was positive E. The information was expected

E. The information was expected